First-time buyers do stand to gain from stamp duty cut, even if house prices rise

IFS analysis eases fears that benefit from lowering duty would be wiped out by a resurgent propery market

FIRST-TIME buyers will benefit from stamp duty cuts even if house prices rise, the Institute for Fiscal Studies has said, amid concerns that sellers could be hit in the pocket by “distorted” house prices.

On Wednesday, Philip Hammond used his Budget to hand first-time buyers a stamp duty cut, making those purchasing homes worth up to £300,000 fully exempt from the charge. Those buying properties worth between £300,000 and £500,000 will receive a partial discount.

Last night critics warned that the policy would end up making home ownership more difficult for young people, after the Office for Budget Responsibility said it would cause house prices to rise by 0.3 per cent.

But yesterday Robert Joyce, associate director at the IFS, said the stamp duty cut would make owning a home more attainable for the younger generation. He said: “Housing is an asset. If it’s more expensive to buy, it’s also more valuable to hold it and more lucrative to sell it.

“There will be some housing not otherwise in reach which will become in reach because larger deposits mean people can secure larger houses.”

And separate analysis from investment firm AJ Bell showed that firsttime buyers can now use a combination of the new stamp duty relief and a Lifetime ISA to pay for 10 per cent of their house purchase.

However, there are fresh concerns that the £500,000 limit, above which first-time buyers must pay full stamp duty, will distort the housing market. It could create a “bunching” effect for up to 30,000 sellers a year, the OBR warned.

This is because first-time purchases of homes just above the limit – even by £1 – will result in buyers facing a 50 per cent tax hike.

Under the new rules, stamp duty of £10,000 is owed on the purchase of a £500,000 property by a first-time buyer. This compares to £15,000 for a £500,001 property. The OBR report said: “This will reduce receipts as firsttime buyer transactions bunch below the threshold. Second, it is likely that some first-time buyer purchases will displace purchasers who would have paid more stamp duty on the equivalent purchase.”

Micheal Bruce, CEO at online estate agent Purplebricks, said: “Overall the stamp duty cut is a positive move but the upper limit will make it very difficult for first-time buyers to buy homes worth just over £500,000, as they will have so much more tax to pay.

“Some sellers of homes valued at £510,00, say, may decide to reduce to £499,000 so they appeal to first-time buyers. Others may sell at £499,000 and then offer some fixtures and fittings inside the home for the remainder of the value, to get around the problem. However, the value of these items must be genuine otherwise such a move would constitute tax evasion, which is illegal. People doing this would need to get the right advice.”

Nationwide analysis of Land Registry data showed there were 29,123 sales of homes valued at between £500,000 and £600,000 in the year to August 2017 in England. The changes, which took effect at midnight on Wednesday, shave £1,739 off the stamp duty bill of an average £211,980 first-time buyer home.

First-time buyers purchasing a property worth £300,000 will save £5,000. For homes worth up to £500,000, firsttime buyers will now not pay stamp duty on the first £300,000. On a £500,000 property the bill falls from £15,000 to £10,000.

The IFS also warned that Mr Hammond’s plans to build 300,000 new homes a year could predominantly benefit older, richer people who chose to buy them as an investment.

Mr Joyce said: “The fall [in home ownership] up to now is not because young people are living nowhere, it’s because they are renting from older people who have bought properties to rent out because that provides a good return.

“Older people might continue to buy these new properties. They will stop doing so only when they take the view that the return in terms of rent and capital gain is not worth their while – the consumption value of housing needs to rise relative to its investment value. That’s how the promise of more house building can tip the scales in favour of younger buyers.”

‘Housing is an asset. If it’s more expensive to buy, it’s also more valuable to hold it’